Weakening Rupiah Threatens to Alter Life Insurance Investment Strategy
Jakarta – The weakening of the Indonesian rupiah exchange rate and turmoil in global financial markets are beginning to influence the investment strategies of life insurance companies in Indonesia. These conditions are forcing industry players to adjust asset allocation and tighten investment risk management amid increasing market volatility.
Insurance observer Irvan Rahardjo stated that current exchange rate changes have become one of the key factors influencing future investment decisions by life insurance companies. Pressure on the rupiah not only increases portfolio investment risk, but also reduces the attractiveness of domestic assets to foreign investors.
“Yes, the current exchange rate condition of the rupiah very much affects the future investment strategy of life insurance companies. Rupiah depreciation increases portfolio risk, especially for those with foreign currency liabilities, and reduces the attractiveness of domestic assets to foreign investors, forcing asset allocation adjustments,” said Irvan in an interview on Tuesday, 10 March 2026.
Pressure on the rupiah is linked to increased global uncertainty, particularly the conflict in the Middle East involving the United States, Israel, and Iran. Geopolitical tensions have triggered a spike in global oil prices due to threats of closure of the Strait of Hormuz, which accounts for approximately 20 per cent of global oil supply.
Rising oil prices could potentially strain Indonesia’s fiscal condition. Indeed, the fiscal deficit is estimated to widen should global oil prices continue to rise, particularly given the downgrade of Indonesia’s economic prospects by international rating agencies.
Beyond geopolitical factors, volatility in global oil prices could also prolong pressure on the rupiah. Iran has even declared readiness for prolonged warfare, whilst Indonesia’s oil reserves are relatively limited, thereby increasing vulnerability to global energy shocks.
At market opening on 9 March, the rupiah weakened to around Rp17,000 per US dollar, marking the lowest level since the 1998 crisis. Primary pressures stem from aggressive monetary policy by the US Federal Reserve, geopolitical uncertainty in the Middle East, and concerns over fiscal deficits and domestic inflation.
Several analysts, according to Irvan, have even projected the rupiah could weaken to around Rp17,700 per US dollar in the coming days absent adequate intervention from monetary and fiscal authorities.
To curb such depreciation, Bank Indonesia and the government are implementing various stabilisation measures, ranging from triple intervention in the foreign exchange market to optimising export revenues.
Rupiah depreciation also has the potential to dampen domestic stock market performance. This could trigger foreign capital outflows as the value of global investor assets in dollar denominations becomes lower, thereby increasing selling pressure in the market.
Such pressure typically impacts large-capitalisation stocks, particularly in the banking sector and issuers with dollar-denominated debt or raw material import dependencies. In the short term, such conditions also have the potential to increase domestic inflation.
For the life insurance industry, stock market volatility has become an important factor affecting the investment returns of companies. Large investment portfolios in equity instruments can increase the potential for returns, but also magnify risks when markets come under pressure.
“The impact of stock investment on the life insurance industry is highly dependent on capital market volatility; positive market conditions significantly increase investment returns, but market weakness triggers insolvency risk and declining policyholder confidence,” he said.
“High equity portfolios increase potential risk-adjusted returns but demand more disciplined risk management, such as stress testing and diversification,” he concluded.